Trefis Helps You Understand How a Company's Products Impact Its Stock Price


SanDisk recently announced its iXpand flash drives to transfer data to and from iPhones and iPads as well as laptops and PCs using the lightning connector. In two recent articles, we take a look at the addressable market for iXpand flash drives is, how much SanDisk can expect from iXpand sales and how it will impact the company's removable storage division as a whole.

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Sprint continues to struggle in terms of its postpaid subscriber performance, with the carrier posting an especially high churn rate in the last quarter. However, management mentioned that the company's low-cost promotions began seeing traction at the end of the quarter. We expect the company's market share to moderate going forward, and eventually increase as its network upgrades are completed.

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Volkswagen Looks To Boost Profits For Its Own-Branded Passenger Cars
  • By , 11/25/14
  • Volkswagen AG (OTCMKTS:VLKAY) is on its way to overthrow  Toyota Motor Corp (NYSE:TM) as the world’s largest automaker in terms of volume sales this year, while simultaneously crossing the record 10 million annual unit sales mark. Volkswagen’s deliveries rose 5% year over year in the first three quarters to 7.54 million units, and if this growth rate continues in Q4, overall deliveries for the company will rise to over 10.2 million units in 2014. Toyota, on the other hand, witnessed only a 2.8% rise in volumes through September, allowing Volkswagen to narrow the sales gap to roughly 74,000 units. Volkswagen might win the battle of volumes with Toyota, but the German manufacturer still trails the latter’s operating performance. While operating margins at Toyota range between 9.5-10.5%, Volkswagen’s margins remain below 7%. We have a  $44 price estimate for Volkswagen AG, which is roughly in line with the current market price. See Our Complete Analysis For Volkswagen AG Let’s deconstruct Volkswagen’s profit problem. Around 60% of the net operating profits for the company last year came from the luxury vehicle divisions Audi, Porsche, and Bentley, which together formed only 16% of the vehicle deliveries, mainly due to the comparatively higher product prices. The let down for Volkswagen has been its own namesake passenger vehicles division, which is dragging down the company’s overall operating performance as margins remain below 3% for this division. The main reasons for lower profits at Volkswagen Passenger Cars is lower volume sales, and high research and development costs incurred by the group to push for innovation at the ailing vehicle division. The company is now aiming to save around 10 billion euros ($12.4 billion) through efficiency initiatives, with the target of 5 billion euros worth of cost-savings at its own-branded passenger vehicle division by 2017. In effect, the automaker aims to improve operational return on sales for its passenger cars to at least 6% by 2018, up from 2.9% last year. As this division forms over 10% of the group’s valuation by our estimates, curbing extra manufacturing costs and improving efficiency could lift Volkswagen’s overall profitability. Large Cost-Savings Expected From Implementing The Modular Toolkit Volkswagen boasts a diverse brand portfolio, including its own branded passenger cars, Skoda, luxury vehicle divisions Audi, Bentley and Porsche, and commercial vehicles Scania and MAN. In 2012, Volkswagen introduced its Modular Transverse Toolkit (MQB) and Modular Production Toolkit (MPB), to help the automaker create a single, more flexible platform to produce vehicles for all the brands across its portfolio, limiting extra assembly costs. The start-up costs for MQB run high, but in the long run, this extremely flexible vehicle architecture is capable of bringing down manufacturing costs significantly. Going forward, increasing implementation of MQB will also allow Volkswagen to reduce development costs, start-up costs, and assembly costs associated with setting-up production of a new model. For example, Volkswagen is currently planning on building a compact SUV in India, and could build this model using the MQB platform. Although localizing MQB would be more expensive at first, other Volkswagen brands in the country such as Audi and Skoda could leverage the very same platform in the future to build their own compact or subcompact SUV in India. The MQB platform allows the German car maker to standardize its production process for small, medium, and long cars. So far the system has been used to manufacture the Volkswagen Golf, Audi A3, Seat Leon, and Skoda Octavia, and the company plans to use this system for most cars in the Volkswagen, Audi, Seat, and Skoda portfolios in the coming years. The platform enables the company to make enormous cost savings by reducing weight and enabling easy installation of luxury technologies in high volume models, which then allows the automaker to lower the average price of its vehicles. As a result, Volkswagen could not only compete better on a pricing front and further improve volume sales, but the large cost reductions could help boost profits and subsequently cash flow for the automaker in the coming years. The company is looking to boost overall operating margins to approximately 8% by 2018, a two percentage point improvement from 2013 levels. We currently estimate adjusted EBITDA margins for the Volkswagen Passenger Vehicles division to rise only to 4.7% by 2018, up from an estimated 4% this year. However, if Volkswagen manages to extract higher profits through the ongoing efficiency program, and adjusted EBITDA margins rise to 7% by 2018 for this division, there could be a sizable 20% upside to our current price estimate for Volkswagen. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Another Cancer Drug Deal, It's Bristol-Myers Squibb This Time
  • By , 11/25/14
  • tags: BMY
  • It appears that lately cancer related drug approvals and deals have been the highlights of the U.S. pharmaceutical industry. Last week, Bristol-Myers Squibb ‘s (NYSE:BMY) shares benefited slightly from positive clinical trial results for its lung cancer drug Opdivo (Nivolumab). And now, the company has signed a deal with Five Prime Therapeutics to test a combination of Nivolumab and latter’s FPA008. Under the deal, Merck will make an upfront payment of $30 million to Five Prime and also finance its phase 1 clinical trials. We note that last week Pfizer (NYSE:PFE) signed a research deal with Merck KGaA for developing a cancer drug, and Johnson & Johnson (NYSE:JNJ) entered an agreement with Geron for developing a blood cancer candidate. Additionally, Roche Holdings (NASDAQ:RHHBY) received the FDA approval for expanded usage of its blockbuster drug Avastin. The takeaway is that going forward, the market valuation of pharmaceutical companies will notably depend on how their investments in oncology, or more specifically immuno-oncology, pan out. Due to increased competition from generics and loss of patent exclusivity for several key drugs, the industry is exploring new growth avenues. Cancer therapeutics stands amongst the most promising ones. The sheer variety of cancer types and the lack of effective treatment options make it a great opportunity, albeit a challenging one. Our current price estimate for Bristol-Myers Squibb stands at $36 .
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    RadioShack's Expanding ‘Fix It Here' Footprint Can Help Increase Its Customer Base
  • By , 11/25/14
  • tags: RSH BBY WMT
  • RadioShack (NYSE:RSH) extended its ‘Fix It Here’ program to 30 stores in Houston, earlier this week. Launched in November last year, ‘Fix It Here’, RadioShack’s national repair program for phones and tablets, is now available in 650 RadioShack stores across the nation and the company aims to roll-out the program in 700 stores by the end of this year. In the last few years, RadioShack has been plagued by an eroding top line growth, declining gross margins, high inventory levels, a string of debt maturities and declining cash reserves. The company reported its tenth consecutive quarterly loss in Q2 2014 (reported on September 11th). Though RadioShack claims to be making steady progress with its turnaround initiatives (which were implemented last year), it has failed to show any significant financial gains so far. Its stock is currently trading at less than $1, down more than 70% year-to-date. Retail and mobility are the two key platforms that RadioShack uses to measure its business. The company claims to be making progress in its retail segment, which accounts for 50% of the sales. It is seeing customers responding positively to the key elements of its turnaround strategy such as the actions it has taken (so far) on reinvigorating the store experience, revamping product assortment and creating a stronger inventory position. However, RadioShack continues to suffer in the mobility segment which accounted for more than 75% of the decline in sales in Q2 2014. The ‘Fix It Here’ Program can provide RadioShack with the much-needed financial hedge as it tries to rebuild its mobility business. See our full analysis for RadioShack ‘Fix It Here’ Can Help Increase Footfall In RadioShack Stores With the ‘Fix It Here’ initiative, RadhioShack offers same day (typically less than two hours) repair services, such as fixing cracked screens, broken buttons, faulty cameras, water damage, audio issues and other maladies, for the most popular smartphones and tablets in the market. Repair starts at $39.99 and include a 90-day warranty. RadioShack claims that its repair technicians are receiving 40 hours of highly specialized, hands-on training to repair these common issues. According to a report by IBISWorld, repairs is a $1.4 billion-a-year market, and its been growing at about 5% a year. The report also states that though there are over 2,300 businesses who offer repair services for phones, there is no company with a dominant market share. RadioShack is the first trusted national brand to offer these services in-house. The company has the largest national presence, with a RadioShack store within 5 miles of 95% of Americans. The ‘Fix It Here’ initiative can help RadioShack lure back old customers as well as attract new customers to its stores, which can help in cross selling other products. Additionally, people who might not want to opt for the repair service (due to high costs) have the option of buying a new device then and there. Providing both the options to customers under one roof can significantly increase footfall in RadioShack stores. RadioShack is witnessing fundamental challenges in its mobility business and is working hard to optimize profitable transactions in this segment. The mobility unit is suffering because of the low consumer interest in the current assortment of handsets, the aggressive promotional environment on these products and intense wireless carrier marketing activities. Customers have delayed purchasing or upgrading their phones, which in turn has led to further aggressive price competition on existing handsets among the wireless carriers and other retailers. RadioShack claims to be addressing the above problems head-on by focusing on profitable sales. It is improving the technology it uses to sell mobile phones and bringing in new wireless offerings. The mobility market has been soft for a number of quarters, but Radioshack expects that new products from key vendors will spur demand in the future. Our price estimate of $0.86 for RadioShack is slightly above the current market price. We maintain a cautious outlook on the company and estimate revenue of around $3.3 billion for fiscal year 2014. Our fiscal 2014 GAAP earnings per share estimate is -$1.74 as compared to the market consensus of -$3.71 (as per Reuters). View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research  
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    Merck Enters Ebola Vaccine Race
  • By , 11/25/14
  • tags: MRK JNJ PFE
  • Merck (NYSE:MRK) is the latest among the big pharmaceutical firms to join Ebola Vaccine race. The company has just announced a deal with NewLink Genetics under which Merck will get the rights to the latter’s experimental vaccine for Ebola virus and in turn, it will make an upfront payment of roughly $30 million and an additional payment of $20 million at the beginning of clinical trials in 2015. The investment is much smaller than what Johnson & Johnson is putting in, which makes us question Merck’s confidence in the vaccine and potential return. In a recent note, we discussed how Johnson & Johnson would like to target around 4-5 million vaccines annually (read How Will Johnson & Johnson’s Ebola Investment Pay Off? ). Merck is going to compete in the same market, which could be larger than 100 million vaccinations. However, the incremental value addition from a successful launch and commercialization will be low considering Merck’s size and our expectation that the price of vaccine is likely to be low. Our price estimate for Merck stands at $52.50, implying a discount of more than 10% to the market.
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    Fox Model Revised After Closure Of BSkyB Deal
  • By , 11/25/14
  • 21st Century Fox (NASDAQ:FOX) has sold its pay-TV business in Italy and Germany to British Sky Broadcasting Group (BSkyB) for $8.6 billion cash and BSkyB’s 21% stake in the National Geographic Channel. Sky Deutschland and Sky Italia were part of 21 st Century Fox’s DBS segment. DBS had been a low margin business for the company. The segment’s revenues had grown at an average annual rate of less than 2% up to 2012. In 2013, Sky Deutschland was consolidated and this led to over 50% jump in segment revenues. If we look at EBITDA margins, they have declined from 19% in 2008 to an estimated 9% in 2013. Moreover, the business involves high capital expenditures. More than 50% of the company’s capital expenditures were associated with its DBS business in the past four years. Given these factors, it was a smart move for Fox to exit the DBS business. However, this deal could help BSkyB negotiate better pricing with the content owners and give the company a potential subscriber base of 97 million in Europe. BSkyB said it expects £200 million of annual cost savings by the end of the second financial year after the transaction is closed. BSkyB is now the largest pay-TV operator in Europe with more than 20 million subscribers in the U.K., Ireland, Italy, Germany and Austria. Fox participated in the BSkyB’s equity offering and purchased $900 million worth of additional shares to retain its 39% stake in the pay-TV operator. With closure of all the transactions, Fox’s cash balance is up by $7.2 billion. We have adjusted the revenues for the first three quarters of 2014 to $4.58 billion and have forecast zero income from this business in the coming years. We will be completely removing this segment from our model after the company files the 10-k for fiscal 2015 with details of balance sheet items and the cash flows. We estimate revenues of about $31.4 billion for 21st Century Fox in 2014, with EPS of $1.54, which is in line with the market consensus of $1.45-$1.64, compiled by Thomson Reuters. We currently have a  $39 price estimate for 21st Century Fox, which is about 15% ahead of the current market price. Understand How a Company’s Products Impact its Stock Price at Trefis
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    Rationale For Google’s Spending On Data Centers
  • By , 11/25/14
  • tags: GOOG
  • Google (NASDAQ:GOOG) is a household name due to the popularity of its search engine. However, the company realizes that the robust growth it witnessed in online ads market in the last decade might not be sustainable in the future, partly due to the limits to the total addressable market (TAM) in the existing market and the rising competition from in mobile app data. As a result, the company is looking to expand its footprint by launching cheaper devices in new markets and propagating new business streams such as cloud services etc. However, in order to achieve this objective, the company continues to build out its data centers, which not only support and complement its core search business but would also help it to expand its services in the cloud vertical. In this note, we will explore Google’s push for data centers. Click here to see our complete analysis of Google Expanding Internet Userbase In the last five years, Internet penetration has increased from 1.8 billion or 26.6% of the world population to 2.8 billion or 39%. Furthermore, companies around the world continue to lure more people to the Internet by introducing cheap smart connected devices. Considering the penetration in mature market, hardware manufacturers are now focusing on emerging countries, which include over 85% of the world population, and contribute almost three quarters of global GDP growth, according to Fidelity Investment Ltd. While majority of the population in these countries is below poverty line, the elite and aspiring middle class make up nearly 20% of the population. However, as economic development gains traction in these countries, many households are expected to move to higher income bracket in the future. For example, India’s middle class has 250 million people, which is expected to grow to 600 million by 2030, according to Deutsche Bank research. We believe that as purchasing power in developing countries improves, discretionary spending will rise as disposable income grows, which will fuel demand for luxury items such as smartphones, net books and tablets that can connect on the internet. Google, like many other companies such as Microsoft etc, has done its bit by launching cheap Android based platform under the Android One name. Furthermore, PC manufacturing companies like HP are also introducing cheap Windows-based thin tablets and laptops. In addition to the traditional devices that log onto Internet, entertainment devices such as Televisions and game consoles can now connect to the Internet to access and download content. All these new devices are adding new users to the Internet community. However, as the user base for smart connected devices grows, so will the need to store data and maintain the quality of service on the Internet. To ensure that it remains unchallenged in its dominance in search (close to 65% in desktop and 90% in mobile), Google must strive to maintain the quality of service. Expansion of Cloud Services Over the past few years, cloud services have come to fore for both large and SME (small and medium size enterprise) companies that looking to improve their businesses by employing IT solutions and services. The advantage of cloud services is the scalability and accessibility to new applications, resources and services. Furthermore, cost associated with using these services are less as the onus of management of these services lie with the cloud services provider. As a result, the demand i s growing for virtualization services, which enable service provider to creating a virtual computer domains independent of the underlying software and  hardware, increasing manageability and reducing cost. This has translated into a CAGR of 17.6% from 2014 to 2020 for the global cloud services market, and expected to reach a market size of $555 billion in 2020 from $209.9 billion in 2014, according to the new report by Allied Market Research. Google’s Spending On Data Centers Google has been steadily ramping up its spending in each of the last ten quarters, crossing the $2.2 billion per quarter mark late last year. This unprecedented level of spending reflects the breadth of Google’s server farm construction program. In the past, Google has undertaken both green field projects (setting up new data centers) and brown field expansion (supplementing capacity at existing centers). In the past nine months, this trend seems to continue. In September, Google announced a new EUR600 million investment over the next four years to build a new data centre in Eemshaven, the Netherlands. The company plans to invest in new facilities in Ireland, Finland, and Belgium in the coming years. Furthermore, it is planning to invest $100 million to $200 million in expanding its Taiwan data center, which was had an investment outlay of over $600 million in earlier phases. In all, the company has spent over $7.5 billion on datacenters in the first nine months of 2014, and the capex is expected to increase to over $10 billion by the year end. While many investors believe that Google may be building data centers even before the company needs them, we believe that it is worth having excess capacity on standby than not having it to support the quality of service and new products. We currently have a  $547 price estimate for Google, which is inline with its current market price. Understand How a Company’s Products Impact its Stock Price at Trefis View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    A Look At Vale's Copper Mining Operations
  • By , 11/25/14
  • Vale (NYSE:VALE) is the world’s largest iron ore producer. In addition to its iron ore mining operations, which account for the bulk of its revenues, the company is also a significant producer of base metals, coal and fertilizers. Falling iron ore prices have had a negative impact upon the profitability of the company’s iron ore mining operations. Vale’s average realized sale price for its iron ore fines fell 38% year-over-year in Q3. The primary reason for the fall in iron ore prices has been an oversupply situation, created due to a steady increase in production in the face of weakness in demand for the commodity. Prices are expected to remain subdued in the near term. Given the bleak outlook for Vale’s iron ore mining operations, the company’s other businesses will play an important role in driving its business prospects. In this article, we will take a look at the state of the company’s copper mining operations and its prospects in the years to come. See our complete analysis for Vale Vale’s Copper Mining Operations Vale’s copper mining operations are spread across Brazil, Canada and Zambia. The company’s prominent copper mines include the Sossego and Salobo mines in Brazil, and the Sudbury and Voisey’s Bay mines in Canada. Vale’s proven and probable copper ore reserves stood at 1.39 billion tons at the end of 2013, with the Salobo mine accouting for over 80% of these reserves. The company produced 370,000 tons of copper in 2013. Vale generated $1.45 billion in sales from its copper mining operations in 2013, around 3% of the company’s overall revenues. Going forward, the company will significantly raise its production levels, driven by a rise in output at the Salobo mine. The Salobo mine started production in 2013 and completed the Phase II expansion of its processing facilities earlier on in 2014. Salobo produced 66,700 tons of copper in the first nine months of the year, around 52% higher than in the corresponding period last year. Upon ramping up to full capacity by 2016, the Salobo mining operations will produce 213,000 tons of copper. Copper Prices London Metal Exchange (LME) spot copper prices currently stand at levels of around $6,750 per ton. These are around 5% lower as compared to levels of around $7,050 per ton at the corresponding point of time last year. Copper prices have fallen largely because of concerns over weakness in Chinese demand for copper. China is the world’s largest consumer of copper, accounting for nearly 40% of the world’s demand of copper.  Copper has diverse applications in industry, particularly in the manufacturing, power and infrastructure sectors. Weakness in economic growth, particularly in the manufacturing sector, has raised concerns over the strength of Chinese demand for the commodity. China’s GDP growth is expected to slow to 7.3% and 7.1% in 2014 and 2015 respectively, from 7.7% in 2013. The state of China’s manufacturing sector can be gauged through the Manufacturing Purchasing Managers’ Index (PMI). The Manufacturing PMI measures business conditions in the manufacturing sector of the concerned economy. When the PMI is above 50, it indicates growth in business activity, whereas a value below 50 indicates a contraction. Chinese Manufacturing PMI, reported by China’s National Bureau of Statistics, stood at 50.8 for October, and has ranged between 50.2 and 51.7 for the whole year. These readings indicate subdued Chinese manufacturing activity. Further, question marks remain over the impact of a proposed structural transformation of the Chinese economy from an investment and export-led growth model to a consumption-driven growth model. Much of China’s consumption of industrial metals such as copper was driven by the country’s massive investment in infrastruture. A structural transformation of the country’s economy could potentially hamper the growth in demand for copper. Outlook Vale’s copper production will rise sharply over the next couple of years as a result of the ramp-up of output from the Salobo mine. Unit production costs costs will fall with the rise in output, providing a boost to margins. However, margins for the company’s copper mining operations will largely be driven by the trajectory of copper prices. These will depend upon the balance of global supply and demand. China will continue to drive the demand for copper in the years to come. With the pace of Chinese growth expected to slow in the near term, demand from China may remain subdued. There are also concerns about long term Chinese demand for the commodity, given the ongoing structural transformation of the country’s economy. On the supply side, a wave of expansions and new projects is expected to boost global copper output in the near term. With demand conditions expected to remain subdued, there could be an oversupply of copper next year. This is expected to limit the upside for copper prices in the near term. Over the long term, the trajectory of copper prices would depend upon trends in Chinese demand for the commodity. It remains to be seen whether China can absorb the expected increase in copper supply in the years to come. Though copper prices look likely to remain subdued in the near term, market conditions for copper are much better as compared to iron ore. Due to a massive iron ore oversupply, iron ore prices are expected to fall sharply next year and remain subdued in the years to come. Given the existing state of affairs, Vale’s copper mining operations will play an important role in boosting the company’s results in the next few years, despite the subdued market conditions for copper.  View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    How Can PepsiCo Derive Growth From North America Carbonated Drinks?
  • By , 11/25/14
  • tags: PEP DPS KO BUD
  • For some time now, one of the world’s largest food and beverages companies,  PepsiCo (NYSE:PEP), has been under investor pressure to spin-off the ailing beverages business. Revenue contribution of both the snack and beverage divisions is roughly equal for PepsiCo, but while the foods business is thriving on high demand in emerging markets and sustained growth in developed markets, the drinks business, and in particular the carbonated soft drinks (CSD) segment, has been on a decline. The company’s soft drink sales, which form around 17% of the net valuation, fell by 8% between 2011-2013, as CSD sales in developed markets continued to decline on the back of growing health and wellness concerns. On the other hand, sales for the snacks division, which forms 62.5% of PepsiCo’s valuation by our estimates, grew by 8% between 2011-2013. Snacks are also more profitable than drinks; EBITDA margins for snacks and beverages stood at 24% and 16% respectively last year. According to activist investor Nelson Peltz, CEO of Trian Partners hedge fund, which holds an approximately $1.8 billion stake in PepsiCo, the company’s stock could be worth $144 a share following a hypothetical spin-off, as the weak-performing soft drinks division is allegedly dragging down the more lucrative snack foods division. However, amid increased investor pressure, PepsiCo has remained committed to deriving cost benefits from synergies between the two businesses, which the company says range between $800 million and $1 billion annually. While the management believes that the combination of snacks and beverages yields higher cost-benefits, investors in favor of the spin-off argue how the cost-cutting at each company, following the split, would more than make up for their current synergies. We estimate a $91 price for PepsiCo, which is roughly 8% below the current market price. See Our Complete Analysis For PepsiCo PepsiCo has stuck to its guns so far, choosing to keep snacks and beverages together, and aiming to derive synergy benefits and productivity gains each year to keep investors content. The company has exceeded analyst estimates for its earnings per share for eleven consecutive quarters now, and increased its full-year outlook on currency neutral earnings per share growth to 9% year-over-year from the previously estimated 8% growth, following the third quarter results. However, despite this strong growth, some argue how the true potential of the stock is still to be unlocked. Although the management has spoken of synergy benefits and beverage potential, the fact remains that PepsiCo’s beverage division is still struggling. Volatile macro conditions in some of the key emerging markets such as Russia, Mexico, and Brazil, have somewhat dragged down PepsiCo’s volume sales this year, but the continual slowdown in North America sales has been the Achilles heel of PepsiCo’s soft drinks segment. While the combined revenue for Frito-Lay and Quaker Foods, the snack divisions of PepsiCo, has grown in each of the last couple of years in North America (excluding Mexico), revenue for beverages in the region has sequentially declined. Some of the headwinds in beverages are industry related, as customers look to reduce unnecessary calorie consumption. But in addition to being hurt by stagnant customer demand, PepsiCo is also losing share to its biggest rivals  The Coca-Cola Company (NYSE:KO) and  Dr Pepper Snapple (NYSE:DPS) in North America. According to our estimates, while Coca-Cola and Dr. Pepper’s value shares in the U.S. CSD market rose each year between 2011-2013 to 42.4% and 17.5% respectively, PepsiCo’s market share fell each year to 28.7% in 2013. Split or no split, PepsiCo will be looking to achieve meaningful organic growth in its drinks business, especially carbonates. Where Could CSD Growth In North America Come From? PepsiCo’s North America soft drink volumes have declined 1% year-over-year in the first nine months, with volumes falling 1.5% in Q3. This is mainly as customers are switching from calorie and sugar-fueled carbonated drinks to healthier, more natural alternatives such as sports drinks, ready-to-drink teas, and even coconut water. However, there are growth avenues for PepsiCo, which if exploited successfully, could expand volume sales and even profitability for the company’s soft drinks business. Engaging Customers- CSDs in the U.S. is a mature market, with Coca-Cola, PepsiCo, and Dr. Pepper together accounting for approximately 89% of the industry volumes, by our estimates. This category has declined for nine consecutive years in the country, with volumes falling 3.2% year-over-year to below 13 billion gallons in 2013, and a further drop in volumes is expected this year. However, CSD still remains the largest segment of the U.S. liquid refreshment beverages market, constituting 43% of the net volumes, as of last year. Despite the assumed stagnation, Coca-Cola managed to squeeze-out 1% growth for its flagship drink Coca-Cola in Q2 in North America, on the back of its Share-a-Coke campaign. The company labeled Coca-Cola, Coke Zero, and Diet Coke bottles with common names of individuals, hoping for customers to buy these personalized bottles and cans and then promote this activity later on through social media. Soft drink companies depend on experiential marketing, and by forming an emotional connect with customers and leveraging present day trend of self expression on social platforms, Coca-Cola managed to grow in Q2, while PepsiCo reported a 2% decline in CSDs in North America during the same period. PepsiCo has tried to engage customers by sponsoring events such as the Super Bowl, but the company is still lagging Coca-Cola in terms of a big strategic hit. One of the reasons for this could be a smaller advertising spend behind its beverages, which PepsiCo could increase going forward to compete better. The drinks-only companies Coca-Cola and Dr. Pepper spent 7% and 8% of their net revenues respectively on advertising in 2013, whereas PepsiCo, which also markets snacks, spent only 3.6% of its net sales on advertising. New Launches- Apart from the slowdown in sales for CSDs, what has hurt soft drink makers is a larger decline in sales of diet drinks. Customers remain skeptical about the safety issues associated with artificial sweeteners used in these drinks, such as aspartame, and have also criticized natural sweeteners for their bitter aftertastes. Beverage manufacturers have looked to solve this high-sugar problem by launching new low-calorie and naturally sweetened products, in a bid to spur CSD sales. Coca-Cola introduced its Coke Life in the U.S., U.K., and Mexico this year, after the naturally sweetened Stevia drink helped increase Argentina and Chile sales for the company last year. PepsiCo also recently launched Pepsi True, a naturally sweetened drink containing 60 calories in a 7.5 ounce can (as opposed to 150 calories in a 12 ounce can), in the U.S., selling the drink on Amazon. However, PepsiCo’s efforts to lift its mid-calorie soda sales, which fell by high mid-single percentages in 2013 and in the first nine months of this year, haven’t met a positive initial customer response, it seems. Pepsi True has received over 3,600 negative reviews on Amazon following its launch last month, reflecting how PepsiCo’s attempt to launch a Stevia-sweetened low-calorie drink might have gone awry. Although the initial response to Pepsi True is disappointing, the company will look to launch new products and provide more options in order to gather customer attention. As an extension to PepsiCo’s snack-beverage partnership, the company is also in the middle of testing a Doritos-flavored-Mountain Dew variant. Profitable Packaging- While new launches and higher investment in marketing could boost volume sales, a favorable product mix could help expand PepsiCo’s operating margins. Smaller-sized packs, even the whole-calorie options, have seen rising volume sales. This is because even though the 12-ounce bottles and mini cans contain the same calories per unit volume as the regular 20-ounce and 24-ounce bottles, the smaller packs have lesser cumulative sugar amounts. Health-conscious consumers who are wary of switching to diet versions, which allegedly alter the taste, are being swayed by beverage companies to switch to smaller-sized packs, which allow for lower one-time calorie consumption. After rising by 34% last year, PepsiCo’s mini can business increased by 24% through June in the U.S. In addition, despite a fall in overall volume sales, higher proportionate sales of the mini bottles and cans resulted in a 2% year-over-year rise in the company’s operating profits for the North America beverage division in Q3. According to Euromonitor, while sales in the overall U.S. CSD market remained flat last year, mini can sales rose 3%, and as this category forms approximately 3% of the industry-wide volumes, there is room for further growth. PepsiCo’s Pepsi True was also launched only in 7.5 ounce cans, and going forward, the company might focus on smaller packages to drive margin expansion. Future growth in the U.S. carbonated drinks market might depend on innovation in the low/mid-calorie segments, but even without volume growth, PepsiCo has the opportunity to improve its operating margins by leveraging profitable packaging and/or undertaking cost-saving initiatives. Margins for PepsiCo’s Americas beverages division stood at 14.2% in the first nine months of this year, compared to over 20% at rival Coca-Cola. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Honda Banking On Booming SUV, Crossover Segment To Grow Its U.S. Sales Numbers
  • By , 11/25/14
  • Honda Motors (NYSE:HMC) revealed the 2015 version of its all new entry-level crossover SUV, the HR-V, at the Los Angeles International Show on November 21. The HR-V is a small crossover, one-size down from the Honda CR-V, and developed like the CR-V on the platform developed for Honda’s subcompact Fit. The 2015 CR-V was one of the two fastest selling cars in the U.S. auto market for the month of October. The HR-V will reach dealers sometime this winter and is expected to be priced around $20,000. The U.S. market version of the car is likely to be made on the company’s assembly line in Mexico and expected to share the 1.5-liter four-cylinder engine with the Honda Fit. The new crossover SUV will join a rapidly growing segment of the market and is expected to boost the company’s top line. We have a $41 price estimate for Honda Motors, which is higher than the current market price. SUVs and Crossovers Form A Fast Growing Segment U.S. light vehicles rose by 6% in the month of October compared to October, 2013. However, the more striking data point to emerge from the October auto sales was that consumer spending rose by 8% in the month, according to figures reported by J.D. Power. The rise in revenue outpaced the gains made in volumes as consumers have been shifting from lower priced sedans to expensive SUVs and crossovers. For the first ten months of the year,  total consumer spending on new vehicles was $334 billion, putting the figure on course to surpass $400 billion for the first time ever. Even though, total vehicle unit sales are still lower than those five years ago or before the recession, and even compared to ten years ago, a trend towards larger and more expensive cars is driving the auto market. Lower gasoline prices can provide a further boost to the auto market in the U.S., as consumers move to trade in their older, fuel-inefficient cars for more expensive, fuel-efficient vehicles in order to lower their overall cost of owning a vehicle. Lower fuel costs should mean that over a long period, the amount of money spent on the operation and maintenance of a car comes down. The price of gasoline fell below the $3 mark for the first time since 2010 earlier this month. Honda Motors is one of the companies that seems to be profiting the most from this trend. In the month of October, Honda, along with Fiat Chrysler, contributed nearly 41% of the total gains made in overall revenues made by the auto industry. For Honda’s America division, the CR-V was the highest selling vehicle for the first time in over two years. The company delivered over 5,100 more CR-Vs than Civics in the month of October. The average price of a CR-V is 25,729 compared to Civic’s 19,597, therefore the higher presence of CR-V in its overall sales mix should boost the company’s margin. The growth in these numbers is driven by the trend towards SUVs and crossovers and away from sedans in the U.S. auto market. Subcompact SUVs, which were virtually unknown until a few years ago in the U.S., have emerged as another strong favorite of consumers in this new auto market environment. In the last decade, big, truck-like SUVs were quite popular with consumers, but now vehicles like the CR-V, which offers car-like handling and fuel-economy, but the same space and all-weather capability as those earlier cars, are taking their place. Highly Competitive Segment The HR-V might be new to the U.S. market but the car is modeled on Honda’s Vezel, which has already been tried successfully in markets like Japan. Small SUVs have been popular in markets where the roads are smaller, consumer budgets are low and gas is expensive. A number of auto makers already have small SUVs in their global product portfolios and a number of these cars might soon make their way to the U.S. too. For example, General Motors has posted good sales numbers with two near-identical cars, the Opel Mokka and the Buick Encore, in Europe and North America respectively. The company is expected to bring the Chevrolet Trax, another car that the company has been selling for a few years in international markets, to the U.S. showrooms in early 2015. Similarly, Nissan’s Juke crossover, Fiat’s Jeep Renegade and Ford’s EcoSport might also be introduced with small variations to the U.S. market. Accord Still Important For Honda The Accord is a very significant model for the Japanese car manufacturer, having accounted for nearly a fourth of the company’s sales in the U.S. in 2013. The model accounted for 26% of the company’s overall sales through the month of September, this year. The recent spike in sales of the Honda Accord is likely a result of the shift in focus from retail sales to individuals by the company. In the month of August, Accord sales grew by nearly a third as the company sold over 51,000 units of the vehicle. For the month, the company’s total vehicle sales exceeded 151,000 units. Honda repeated its performance in September by selling nearly 33,000 units of the Accord, implying a near 33% increase compared to last year’s 25,171 units sold in September. Additionally, Honda offered attractive discounts on the model, making it attractive to owners who own an older model vehicle. The success of this model is highly important to Honda’s prospects in the U.S., its biggest market, especially as other divisions are stagnating. The Accord is extremely important for the company and the new 2015 model will face competition from the newly re-designed 2015 version of Toyota’s Camry. The new Accord, which comes with better fuel efficiency and operational features such as the Homelink Wireless Control, will go on the market at a cheaper price than the new Camry. If the lower price can persuade consumers to buy the Accord instead of the Camry, it will go a long way to improving the company’s profitability. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    iXpand Flash Drives For Apple Devices To Overhaul SanDisk's Removable Storage (Part 1)
  • By , 11/25/14
  • SanDisk (NASDAQ:SNDK) introduced the iXpand flash drives to transfer data to and from Apple (NASDAQ:AAPL) iPhones and iPads using the lightning connector. These flash drives are specifically designed to be used with Apple products running iOS 7 or iOS 8. The drives will have a special app to enable data transfer from portable handheld devices to Macs or PCs. The app also has cross-platform encryption, which means that users can transfer data across their smartphones, tablets, laptops or PCs in a secure manner, as files remain password protected. Furthermore, IDC estimates that over 75% of photos taken in the world are on smartphones and tablet devices. As a result, smartphone and tablet users have a growing need to manage, transfer and back up data. In the first part of this two-part article, we take a look at the addressable market for iXpand flash drives and how much SanDisk can expect from iXpand sales. In the second part of the article we will take a look at SanDisk’s removable storage division as a whole and the impact of selling Apple products to SanDisk’s margins. We have a $93 price estimate for SanDisk’s stock, which implies a slight discount to the current market price.
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    iXpand Flash Drives For Apple Devices To Overhaul SanDisk's Removable Storage (Part 2)
  • By , 11/25/14
  • SanDisk Corporation (NASDAQ:SNDK) recently announced the launch of its iXpand flash drives for Apple (NASDAQ:AAPL) devices running on both iOS 7 and iOS 8. In the first part of the article, we gauged the potential market size for iXpand flash drives. Furthermore, we looked at the revenue potential for SanDisk by iXpand sales. In this article we estimate the impact of these drives on SanDisk’s removable storage division as a whole. Additionally we take a look at how making products for Apple impacts SanDisk’s revenues and margins. We have a $93 price estimate for SanDisk’s stock, which is slightly lower than the current market price.
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    CVS Gives New Mexico It's First Retail Medical Clinic
  • By , 11/25/14
  • tags: CVS RAD WAG
  • Last week,  CVS Health (NYSE:CVS) expanded its MinuteClinic footprint in New Mexico and gave the region its first retail medical clinic by opening MinuteClinics in three CVS pharmacy stores. MinuteClinics are small walk-in retail health clinics within the CVS Caremark pharmacy stores which utilize nationally recognized protocols to diagnose and treat minor health conditions, perform health screenings, monitor chronic conditions and dispense vaccinations at much lower prices than a hospital. It is usually staffed with advanced degree nurses known as nurse practitioners who treat routine maladies. CVS has provided medical care to over 20 million patients since the inception of MinuteClinic. It has approximately 2,200 nurse practitioners, providing high-quality, affordable, walk-in healthcare services, seven days a week, without any prior appointment. MinuteClinic also has affiliations with 47 major health systems around the country, with joint clinical programs and integration of electronic medical record. CVS is the largest and the fastest growing retail clinic operator in the U.S. Currently, the company has opened MinuteClinics in 939 location in 31 states and the District of Columbia. It plans to open a total of 150 new MinuteClinics by the end of the year and operate 1,500 clinics by 2017. New Mexico is CVS’ fourth expansion state in 2014. The company anticipates an increasing demand for medical services in New Mexico and believes that MinuteClinic can play an important role in providing easy access to medical care for local residents. As per a recent report by Merchant Medicine, CVS has a considerable lead with more than double the number of retail clinics compared to its closest competitor Walgreen. While CVS has over 900 MinuteClinics in 31 states, Walgreen operates just 388 clinics in 19 states. Additionally, the report claims that CVS continues to open clinics at a much faster pace than its competitors. Wal-Mart, Target and Kroger are some other companies that run similar retail clinics. Operating 119 retail clinics, Kroger is ranked number three followed by Wal-Mart (92) and Target (70). The U.S. is currently facing  an acute shortage of primary care physicians . With 30 million additional Americans expected to be included under healthcare coverage (as a result of the Affordable Care Act), the demand is expected to outweigh the supply by about 45,000 doctors by the end of this decade. Expanding the MinuteClinic footprint can help CVS take advantage of this huge demand-supply gap. Our price estimate of $77 for CVS Caremark is approximately 10% lower than the current market price. We are in the process of updating our model for the company. View our detailed analysis for CVS Caremark View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
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    J&J Is Demanding Too Much From Boston Scientific
  • By , 11/25/14
  • tags: JNJ BSX
  • Johnson & Johnson (NYSE:JNJ) is demanding $7.2 billion in damages from Boston Scientific in relation to the breach of contract by Guidant. The claim arises from the controversial auction nine years ago in which Guidant sold itself to the highest.  The trial has begun and could have severe repercussions for Boston Scientific if J&J’s action succeeds. J&J claims that Guidant  through misrepresentation breached the contract the due diligence process, allowing Boston Science to outbid J&J, presenting it from acquiring the company for a much cheaper price. In fact, Guidant’s acquisition hasn’t turned out to be a winner for Boston Scientific. A huge penalty could meaningfully erode the company’s market value and marginally increase J&J’s. Although the case is technically against Guidant, the liability is Boston Scientific’s as it acquired Guidant and assumed its potential liabilities. Our price estimate for Johnson & Johnson stands at $101, implying a discount of about 5% to the market price.
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    Reviewing Optum’s Contribution To UnitedHealth’s Growth In 2014
  • By , 11/25/14
  • tags: UNH
  • UnitedHealth’s Optum line of business has registered robust growth over the past few quarters. Optum’s contribution to the company revenues has shot up from around 20% in 2013 to nearly 30% through the first nine months of 2014. Optum provides healthcare services to individuals, employers, governments and other companies. The Optum division has three subdivisions, namely OptumHealth, OptumInsight and OptmRx. Optum’s total revenues have grown by 25% to over $35 billion during the first three quarters of 2014, compared to the same period in 2013. This makes it by far the company’s fastest growing business. In this article we briefly discuss the performance of the three Optum subdivisions for the first nine months of 2014. We have a price estimate of $89 for UnitedHealth’s stock, which is at a slight discount to the current market price.
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    A Look At The Country’s Largest Card Lenders: Credit Card Payment Volumes
  • By , 11/25/14
  • Card lenders have seen a notable improvement in their transaction-based fee revenues over recent years, as improved economic conditions have allowed cardholders to be more liberal with their discretionary spending. Although the Credit CARD Act of 2009, and the implementation of several Federal Reserve rules which cap interest rates and fees on cards, have reduced the profitability of this lucrative business since the economic downturn, card revenues remain one of the biggest sources of value for banking giants. With the size of outstanding card balances and card payment volumes rising in tandem since 2012, the country’s largest card lenders have capitalized on this to boost their top-line figures even as the low interest-rate environment applies pressure on retail banking revenues. In this article, which is a part of our ongoing series detailing the country’s largest card lenders -  JPMorgan Chase (NYSE:JPM),  Bank of America (NYSE:BAC),  Citigroup (NYSE:C),  U.S. Bancorp (NYSE:USB),  American Express (NYSE:AXP),  Discover (NYSE:DFS) and  Capital One (NYSE:COF) - we detail the growth in their card payments over the last eleven quarters and also hint at the trends one can expect from card fees in the near future.
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    China Unicom Announces Ambitious 4G Goals For 2015 Despite Sluggish Current Performance
  • By , 11/25/14
  • tags: CHU CHA CHL
  • China Unicom ‘s (NYSE:CHU) sluggish gains in the Chinese wireless market continued in October, with the carrier registering 1.15 million high speed (3G and 4G) user additions. This was almost equal to the 1.13 million user adds registered by the carrier in September, which marked its weakest monthly performance in over three years.  The carrier currently offers 4G services in select cities on a mixed network using both the TD-LTE and FDD-LTE standards. The license for offering TD-LTE 4G services was granted by the government in December 2013 and the FDD-LTE 4G network is being slowly tested and expanded on the back of a trial license granted in June this year. China Unicom’s performance was dwarfed by market leader  China Mobile (NYSE:CHL) as well as smaller rival  China Telecom (NYSE:CHA), which gained about 12 million and 2.1 million high speed subscribers in the same period, respectively. Increased competition in the 3G/4G market, aggressive 4G network expansion by China Mobile and a dual 4G strategy seem to be weighing on China Unicom’s performance. China Unicom recently announced plans to sell about 100 million 4G devices next year. It will be interesting to see how it plans to do this considering that its 4G user base currently is negligible. China Unicom’s total high speed subscriber base stood at 147 million at the end of October, with a 3G/4G mix of about 50%. Our current price estimate for China Unicom is $16, implying a slight premium to the market price.
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    Shutterfly Acquires Photo Book Application GroveBook In Another Strategic Tuck-In
  • By , 11/25/14
  • tags: SFLY
  • Shutterfly (NASDAQ:SFLY), the Internet-based image publishing company, acquired GrooveBook, a mobile photo book application subscription service, on November 17th. Valued at $14.5 million, the deal includes an upfront purchase amount and a future performance-based earn-out. Grovebook prints up to 100 photos stored in the mobile phone, in a 4.5″ x 6.5″ GrooveBook format. It then mails the keepsake book to customers, for a monthly charge of $2.99. GrooveBook has more than 1 million downloads, 200 million photo uploads and a subscriber base of around 7 million. Shutterfly has a history of acquiring start-ups related to the photography domain. It has earlier acquired companies including ThisLife (photos and videos organizer), Tiny Prints (premium cards and stationery for all occasions), Treat (allows users to create personalized greeting cards), Wedding Paper Divas (wedding related stationery), BorrowLenses (online photo and video equipment rental service), and others. According to Brian Whiteman, GrooveBook’s founder, GrooveBooks’s acquisition by Shutterfly will enable the former to leverage the latter’s technological and manufacturing platform to scale up operations, which will allow it to increase its profitability and brand value. Earlier in October, private equity firm, Silver Lake Partners put their plan of acquiring and combining Shutterfly and Hewlett-Packard’s Snapfish on hold. However, Silver Lake is still open to talks with Shutterfly. The merger of Shutterfly and Snapfish—both companies operating in the photo storage and printing space—would create a bigger entity, expand the customer base, and pose a  substantial threat in this market space witnessing continuous influx of players. Our $45.16 price estimate for Shutterfly is at a slight premium to the current market price. See our complete analysis for Shutterfly How Is The GroveBook Acquisition Strategically Relevant for Shutterfly? Shutterfly leads the post-photo products and services category, with more than 50% market share. According to a study by BCC Research the global “complementary products and accessories” segment of the $68 billion digital-photography industry generated more than $5.7 billion in sales in 2011 and will increase to approximately $7.9 billion by 2016.. In 2013, Shutterfly reported yet another year of double-digit growth in revenues to reach $784 million as the number of orders processed by the company grew 13.7%, to reach 18.6 million. In Q3 2014 it reported net revenue of $142 million, which marked the 55th consecutive quarter of year-on-year increases. This raises the question about Shutterfly’s recipe for success in the digital domain, where established names like Kodak and Fujifilm have perished. Shutterfly’s main strategies include strategic acquisitions, vertical integration of the company, cross selling its products, continuously upgrading itself according to changing demands, and integrating acquired technologies into its core products. Shutterfly has always been strategic in its acquisitions. When it bought Kodak Gallery for $24 million, it also acquired the 75 million customer accounts, which made a noteworthy addition to Shutterfly’s client database.  The acquisition of Penguin Digital aided Shutterfly in adding mobile to its portfolio and ThisLife added cloud-based photo-and-video skill set to its offerings. With GroveBook, it will not only expand its customer base but will also add another new feature to its offering, that is, monthly photo book printing from photos captured through mobile cameras. Another important strategy, according to John Borris, Chief Marketing Officer of Shutterfly, has been vertical integration. Shutterfly tries to control its business chain from end-to-end. They even have their own manufacturing facilities. Hence, the acquisition of Grovebook seems strategically relevant as the company prints photo books from photos saved in mobile phones, which is the next logical step for Shutterfly, after offering customers photo-printed cards, mementos, and accessories. The company specifically targets families with young kids, in particular mothers, as they are the ones who make most of the decisions regarding holiday cards, stationery, photo books, and other photo gifts- products sold by Shutterfly. Shutterfly had transformed from a single brand market leader to a family of brands, which in turn helps it “cross pollinate”, that is, sell products from one brand to a customer in a different brand. The four main brands (Shutterfly, Tiny Prints, Wedding Paper Divas and Treat), besides having their individual customer base, continuously aim at cross-selling to customers from the other brands. For instance, its Wedding Paper Divas brand sells wedding related stationery such as invitation, thank you cards etc. The Wedding Paper Divas customer is given a further push through triggered mails, to purchase from the other brands such as Tiny Prints or the Shutterfly main brand for photo cards or children’s photo albums. These cross-selling activities should lead to further expansion in the company’s average order value (AOV). Additionally, good cross-selling activities should improve customer retention and increase overall customer base in the long term. Shutterfly continuously broadens its offerings based on technological advances and changing demands, for example, its launch of photobook app for iPad in mid-2013. It integrated technology with one of its most popular products. Hence, we expect the acquisition of Grovebook to be another strategic advance on Shutterfly’s part, in order to cater to a clientele with ever increasing demands and constant changes in requirements. View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
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    Gorilla Glass 4 Can Cater To Demand For Damage Resistant, Thinner Displays
  • By , 11/25/14
  • tags: GLW AAPL
  • On November 20, Corning introduced the Gorilla Glass 4, which was a significant improvement over Gorilla Glass 3 and also most other competing cover glass in the market. We believe that the characteristics of the glass will ensure that Corning remains the market leader in the consumer electronics cover glass segment by catering to the growing demand for thinner and more damage-resistant devices.
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    Verizon Launches New FiOS Package Targeting Cord Cutters
  • By , 11/25/14
  • tags: VZ T CMCSA DTV
  • Verizon (NYSE:VZ) has witnessed declining FiOS user additions in the first three quarters this year, and the carrier seems intent on reversing that trend in the fourth quarter. It  recently launched a new double-play package offering 50 Mbps FiOS Quantum Internet service, FiOS TV local package, HBO and SHOWTIME for two years and a one-year Netflix subscription – all at a competitive price of just $60 per month. The package is available in all markets with FiOS coverage and can be availed by January 19, 2015. This is an extremely competitive offering considering an average Netflix subscription itself costs about $8-9 per month or about $ 100 per year. In addition to targeting rivals such as AT&T (NYSE:T), Comcast (NASDAQ:CMCSA) and Cox, who have also stepped up promotions to gain subscribers, Verizon’s latest offer seems to be targeting cord cutters- customers who cancel a wireline phone or pay TV service to opt for an alternative wireless or Internet-based service. The carrier’s offer seems better than similarly priced offers from AT&T, where the Internet speed is only 6 Mbps, as well as Comcast, where the average cost per month over a two-year period is higher at around $68 ($60 per month offer price for the first year and $75 per month for second year). We believe Verizon’s new offering will help it improve its FiOS user additions in the fourth quarter. In the third quarter, Verizon added 162,000 net new FiOS Internet connections and 114,000 net new FiOS Video connections, down about 16% and 6% y-o-y, respectively. Its total FiOS Internet and Video subscriber base at the end of September 2014 was 6.5 million and 5.5 million, respectively. We have a price estimate of $53 for Verizon’s stock, which is slightly ahead of the current market price.
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    Trina Solar Earnings: Margins Rise On Better Shipment Mix, Project Sales
  • By , 11/25/14
  • tags: TSL YGE JASO
  • Trina Solar (NYSE:TSL), the largest profitable Chinese solar company, reported a mixed set of Q3 2014 numbers and cut its full year shipments guidance as it cancelled a planned utility-scale project in China. The company’s revenues grew by around 12.5% year-over-year to $616.8 million driven by higher shipments to markets such as Japan and China, while operating income grew to $35.6 million from around $6 million the same quarter a year ago. The company’s EPS came in at $0.14, missing consensus estimates, due to a $16 million foreign exchange loss that the company recorded to account for depreciation of the Euro and Japanese Yen against the U.S. dollar. The company shipped a total of 1,063 MW of modules during Q3, including 127 MW of shipments to its own downstream projects. In this note, we take a look at some of the key drivers of the company’s earnings.
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    Weak Agriculture Equipment Sales Will Likely Temper Deere's Earnings
  • By , 11/25/14
  • tags: DE CAT
  • Deere & Co. (NYSE:DE) is set to release its fourth quarter fiscal year 2014 results on November 26. Similar to the trend witnessed in the past few quarters, Deere’s revenue will likely continue to be tempered by poor sales of its Agriculture & Turf division. Deere will be relying on growth in U.S. construction activity to boost its Construction & Forestry division’s sales and somewhat offset the declines in Agriculture & Turf. In its fiscal third quarter, Deere posted a 5% year-on-year decline in revenue, to $9.5 billion, as a result of weak conditions in the global farm equipment sector, which negatively impacted Agriculture & Turf revenue. However, this was partially offset by gains in Construction & Forestry and the Financial Services business. Net profits and earnings per share declined 14.6% and 8.9%, respectively. Deere revised its revenue guidance further downwards due to continued weakness in the global farm equipment sector. It now forecasts a full fiscal year revenue decline of 6% year-on-year, compared to its previous guidance of 4%. However, Deere revised it net income forecast slightly upwards, from a decline of $3.3 billion to decline of $3.1 billion.
    Dividend Smackdown: Microsoft vs ExxonMobil
  • By , 11/25/14
  • tags: SPY TLT
  • Submitted by Sizemore Insights as part of our contributors program 10 Things You Need to Know About Retail by  Charles Lewis Sizemore, CFA Big-tech behemoth Microsoft Corporation ( MSFT ) leapfrogged ExxonMobil Corporation ( XOM ) last week to become the second-largest company in the world by market cap. MSFT stock weighs in at a valuation of $405 billion compared to $402 billion for XOM stock. Both still have a long way to go before catching up with Apple Inc.’s ( AAPL ) world-leading $671 billion market cap, but the reversal is telling. Just a year ago, Exxon was considered the bluest of blue chips, and Microsoft was a tech dinosaur that had been left in the dust by Apple, Google ( GOOG ) and others. But today, with crude oil prices in freefall and with Microsoft resurgent under CEO Satya Nadella, MSFT stock has the momentum. I’m actually bullish on both stocks.  I’ve been long Microsoft for years, and I have indirect exposure to ExxonMobil via a position in the Energy Select SPDR ETF ( XLE ) . Both stocks are monster dividend payers with long histories of rewarding their shareholders. Today, we’re going to put Microsoft and ExxonMobil in the ring for a dividend smackdown. May the best dividend payer win! Exxon Mobil Corporation We’ll start with ExxonMobil.  XOM stock currently yields 2.8%. This isn’t a monster payout by any stretch, but it is competitive in a world in which the 10-year Treasury yields a pitiful 2.3%. ExxonMobil pays out only 33% of its earnings as dividends. So, come what may with the price of crude oil, there is still plenty of room for dividend growth in the years ahead.  And indeed, ExxonMobil has been a serial dividend raiser over time, boosting its payout every year for the past 32 years.  Over the past five years, it has raised its dividend at a 10.7% clip.  Over the past ten years—a period that included the 2008 meltdown—it has raised its dividend at a 9.4% clip.  That’s not too shabby! Let’s take a look at one of my favorite metrics: Yield on cost. Yield on cost is the current annual dividend divided by your original purchase price. This is the cash return that you’d enjoy for buying and holding a dividend stock, and it’s an important consideration for a stock like XOM with a modest current yield but a long history of dividend raising. If you had bought ExxonMobil five years ago and held it until today, you’d be enjoying a yield on cost of 4.8% . Had you bought it ten years ago, you’d be enjoying a yield on cost of 6.9%.  You’d have a hard time buying junk bonds offering a yield that high today. But such is the compounding power of dividend growth. Microsoft Corporation Microsoft sports a slightly lower yield than ExxonMobil at 2.3%.  It also has a slightly higher dividend payout rate at 44%.  But the dividend payout rate is still low enough to suggest that years of healthy dividend boosts are doable for Microsoft. Microsoft’s dividend growth rate blows ExxonMobil’s out of the water.  Over the past five years, Microsoft has boosted its dividend at a 20.0% annual rate.  And over the past 10 years, it’s grown it at a very impressive  14.3% annual rate. Part of this is due to Microsoft being newer to the world of dividend paying.  Microsoft declared its first dividend just 11 years ago, and its initial quarterly payout was modest.  But it’s fair to say that Microsoft is making up for lost time with its aggressive dividend hiking. Can it continue?  Well, let me put it this way: It’s showing no signs of slowing down.  Microsoft grew its dividend at a 21.7% clip over the past year. Looking at yield on cost, had you bought Microsoft stock five years ago, you’d be enjoying a 5.7% yield today.  Had you bought Microsoft stock ten years ago, you’d be enjoying an 8.6% yield today.  These are the kinds of yields you normally only find in speculative mortgage REITs and business development companies. So . . . who wins the dividend smackdown? I’m giving this round to Microsoft based on its higher dividend growth rates.  But Exxon Mobil is a worthy competitor, and I would recommend both for a diversified income portfolio. Disclosures: Long MSFT, AAPL Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. Click here to receive his FREE weekly e-letter covering top market insights, trends, and the best stocks and ETFs to profit from today’s best global value plays. This article first appeared on Sizemore Insights as Dividend Smackdown: Microsoft vs ExxonMobil
    26.25% Annual Return With Lobbying Stocks? Here Is How It Works…
  • By , 11/25/14
  • tags: SO SPY
  • Submitted by Dividend Yield as part of our contributors program . 26.25% Annual Return With Lobbying Stocks? Here Is How It Works . .  . I found an interesting portfolio investing idea: Invest into stocks that spend a huge amount of money to support political campaigns’. It’s no wonder that corporations have a huge interest in spending money for politics: Each dollar should create a return of 220 bucks in the future. That’s a pretty good investment in my view. I’m no social guy and have no thoughts in my mind how governments work but stocks that have spent huge amounts for lobbying as a percent of total assets, have performed very well in the past. Stocks that lobby Washington beat the street by shocking 11 percent yearly! Since 2009 a compilation of lobbing stocks generated an annual return of 26.25 percent while the Sharpe Ratio of the combined portfolio reached a high value of 0.88. Look at my linked stock list . Hope you get some new ideas. I still introduce many investing ideas and dividend growing stocks on my blog. Here are the top stocks that spend a large amount on lobbying as a percent of total assets: #1 Southern Company ( NYSE:SO ) has a market capitalization of $41.97 billion. The company employs 26,300 people, generates revenue of $17.087 billion and has a net income of $1.710 billion. Southern Company’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $6,733.00 million. The EBITDA margin is 39.40 percent (the operating margin is 19.05 percent and the net profit margin 10.01 percent). Financials: The total debt represents 36.09 percent of Southern Company’s assets and the total debt in relation to the equity amounts to 115.67 percent. Due to the financial situation, a return on equity of 8.81 percent was realized by Southern Company. Twelve trailing months earnings per share reached a value of $2.34. Last fiscal year, Southern Company paid $2.01 in the form of dividends to shareholders. Market Valuation: Here are the price ratios of the company: The P/E ratio is 19.97, the P/S ratio is 2.46 and the P/B ratio is finally 2.18. The dividend yield amounts to 4.50 percent and the beta ratio has a value of 0.18. – See more at: 26.25% Annual Return With Lobbying Stocks? Here Is How It Works…
    10 Things You Need to Know About Retail
  • By , 11/25/14
  • tags: GPS M
  • Submitted by Wall St. Daily as part of our contributors program 10 Things You Need to Know About Retail By Chris Worthington, Editor-in-Chief of Income   Well, the most American holiday of the year is almost here, and I don’t mean Thanksgiving. No, I’m talking about Black Friday. Indeed, retailers are already gearing up for their busiest stretch. With that in mind, I’m giving you my No. 1 tip to beat the Black Friday rush: Don’t go. Seriously. Instead, check out the top 10 things every income investor needs to know about retailers leading up to the Black Friday insanity… 1. Retail Sales on the Rise The National Retail Federation (NRF) expects retail sales to be above average this year, due in large part to gas prices that are 11% lower than one year ago. The NRF expects a 4.1% rise in retail sales this year, which would significantly outpace the 10-year average of 2.9%. Last year, sales rose 3.1%. 2. SPDR S&P Retail ETF ( XRT ) Moves on Up Meanwhile, retail stocks have been underperforming all year – but that’s quickly changing. SPDR’s retail ETF, XRT, has charged ahead 12.3% since reaching a closing low on October 13. It’s even outperforming the S&P 500 by 3% over that period. XRT has broken through resistance in recent weeks and has now reached new 52-week and five-year highs. 3. Best Buy ( BBY ) Surprises Investors It hasn’t been the best of times for Best Buy recently, which is why BBY’s latest earnings report was so surprising. The company not only beat earnings estimates (which it has done for eight consecutive quarters now), but it also reported revenue growth for the first time since Q3 2013. On top of that, BBY raised its dividend from $0.17 per share to $0.19 per share, its first dividend increase since 2012. 4. Macy’s ( M ) Reaches New All-Time Highs After hitting a low on October 13, Macy’s has rebounded rapidly to post new all-time highs in November. The ubiquitous department store has rallied nearly 13% in the last seven weeks, and the retailer doesn’t appear to be slowing down, either: Morgan Stanley ( MS ) analysts expect Q4 outperformance from Macy’s. 5. Kohl’s ( KSS ) Is Bouncing Back Kohl’s disappointed investors by missing on third-quarter earnings per share by nearly 8%. Revenue and earnings both dropped on a year-over-year basis, as well. Since then, though, Kohl’s has rebounded by 3.2% and is continuing its upward climb after reaching a closing low on October 31. Analysts are down on KSS, but the clothing retailer sports a low EV/EBITDA of 6.3x and a 2.7% dividend yield. 6. GameStop ( GME ) Misses Earnings GameStop reported third-quarter earnings last Thursday, and the results weren’t pretty: GME missed earnings estimates by 7.17%, and sales were off by over 5%. As of this writing, shares are down 12% on the news, leaving GameStop ranked among the S&P 500 stocks with the biggest gap between its stock price and analysts’ price estimate. GME blames the delayed launch of the new Assassin’s Creed title, but the fact that more consumers are buying games via digital download is concerning in the long run. 7. The Gap ( GPS ) Gets More Bad News On October 9, The Gap’s CEO, Glenn Murphy, announced that he’d be stepping down after failing to revitalize the company’s brand. Shares tumbled more than 12% on the news and closed at a 52-week low. The stock rallied after that – but was cut short on Friday after GPS lowered its annual profit outlook. As of this writing, the stock is down more than 5% on the news. Considering the company can’t move its potentially out-of-style clothing, the future doesn’t look bright at the moment. 8. Ross ( ROST ) Posts Big Gains On the other hand, Ross Stores is on fire right now, beating Q3 earnings estimates by 7.3% and posting its biggest sales gain in five quarters. Shares are up 25% since hitting a closing low on July 16 and have now reached a new all-time high, making ROST one of the leaders in the recent retail turnaround. 9. Nordstrom ( JWN ) on a Tear Nordstrom beat analysts’ estimates for third-quarter earnings and same-store sales. The high-end department store expects “approximately 7.5%” sales growth over the next year, and shares have continued to run on the good news. JWN’s stock is up 10% since reaching a closing low on October 1, and it has outperformed the S&P 500 by 4.9% over that same period. 10. Williams-Sonoma ( WSM ) Stays Strong Williams-Sonoma continued its strong 2014 by beating third-quarter earnings estimates by 7.77%. The high-end retailer is up 15% since hitting a low on October 16 and has outperformed the S&P 500 by a whopping 15.5% year to date. Things are looking up for retail as Black Friday approaches, and sales should be strong. But it’s no secret that harsh winters can put a damper on retailers – so if the whole northeast gets a blizzard akin to the one pounding Buffalo right now, then all bets are off. Good investing, Chris Worthington P.S. As the holiday shopping season commences, consumers will be racking up thousands of rewards points at their favorite retailers. Well, did you know there’s a way to cash in on these store loyalty programs without making a single purchase? Check out how rewards points have suddenly become the hottest cryptocurrency on Wall Street. Full story . The post 10 Things You Need to Know About Retail appeared first on Wall Street Daily . By Chris Worthington
    Stocks in the Social Media Era: Finding the Sweet Spot Between Innovation and Experience
  • By , 11/25/14
  • tags: SPY TWTR FB
  • Submitted by J. Frank Sigerson as part of our contributors program . Stocks in the Social Media Era: Finding the Sweet Spot Between Innovation and Experience The World Wide Web just turned 25 this year. We’ve come a long way since, and we all have Tim Berners-Lee, a British scientist at CERN, to thank after he invented this space we’ve all come to know and love. But who mentions the big ol’ WWW anymore? Already the term is Web 2.0, and already we have moved beyond that and are now currently in the era of social media — a term no doubt you will hear again (and again, and again) in the years to come. Social media usually refers to a website that interacts with the user while providing information. Participation can take on many forms — allowing readers to leave comments on a post; a poll that shows results in real-time as users vote; or recording, calculating, and analyzing activities based on what the user clicks. Daniel Nations of About Technology writes : “Think of regular media as a one-way street where you can read a newspaper or listen to a report on television, but you have very limited ability to give your thoughts on the matter. Social media, on the other hand, is a two-way street that gives you the ability to communicate too.” These days, most businesses are very well integrated with social media, primarily because the consumers are there. We have made social media so much a part of our lives that the majority of our daily activities are recorded and shared through various social media sites. But what about social media behemoths themselves, like Twitter or Facebook? How viable is their business model? Should you invest in them? Here are some social media stock picks: Twitter (NYSE:TWTR) Up by 0.14 points (0.35%) this week, closing price is at 40.61 as of 18 November. Forbes reported that the company had strong earnings for the second quarter, and user rate is still growing. Over the past few years Twitter has played a big role beyond merely posting thoughts with a limit of 140 characters. The platform has been a significant tool in keeping up-to-date with the latest news, from regime overthrows to the latest episode of Game of Thrones. It is a useful medium for news reporters, government officials, industries, and a lot of businesses to disseminate information in real-time. Facebook (NASDAQ:FB) Up by 0.10 points (0.13%) this week, closing price is at 74.34 as of 18 November. Boasting of a user base of more than 1 billion people, this definitive social networking site has its stock trading expensively. Per InvestorPlace, it is currently developing a new function that caters to the business sector called “Facebook at Work.” It is said to be Facebook’s answer to competitor, LinkedIn, and might be a game-changer. AudioBoom Group PLC (AIM: BOOM) Up by 37.16 points (0.56%) this week as indexed in the FTSE 100, closing price is at 6,709.13 as of 18 November. The only social media stock listed in the London Stock Exchange, AudioBoom is currently making waves as the only digital audio and social media platform dedicated to the spoken word. It offers a variety of content: syndicated radio shows (spanning news, sports, culture, etc.), podcasts, audio lectures and recordings, and more. Users can also record, edit and upload their own audio. — Sources:
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